More than $2 Trillion are China's Reserves of US Dollars

China’s Foreign Exchange Reserves Surge, Exceeding $2 Trillion
July 15 (Bloomberg) -- China’s foreign-exchange reserves, the world’s biggest, topped $2 trillion for the first time as the nation’s economic recovery prompted overseas investors to pump money into stocks and property.

The reserves rose a record $178 billion in the second quarter to $2.132 trillion, the People’s Bank of China said today on its Web site. That dwarfs a $7.7 billion gain in the previous three months.

The Shanghai Composite Index, the world’s second-best performer, surged 75 percent this year as Premier Wen Jiabao’s stimulus package triggered unprecedented lending and surging investment. The increase in the reserves means China may buy more U.S. Treasuries as the Obama administration expands debt sales to fund a plan to revive growth.

“Hot money is flowing back,” said Sherman Chan, an economist with Moody’s Economy.com in Sydney. “China has the strongest prospects out of all major economies.”

M2, the broadest measure of money supply, rose a record 28.5 percent in June from a year earlier, the central bank said.

The yuan traded at 6.8316 against the dollar as of 4:47 p.m. in Shanghai, from 6.8329 yesterday.

The central bank has used bill sales to push up money- market rates for three weeks, seeking to tighten monetary policy without choking off a recovery as the surge in money supply increases the risk of asset bubbles, bad loans and resurgent inflation. China’s reserves are double those of Japan, the country with the second-biggest foreign currency holdings.

‘Great Challenges’

“The pace of foreign-exchange inflows will accelerate in coming months as China’s recovery attracts investors, and that will pose great challenges for monetary policy,” said Lu Zhengwei, an economist at Industrial Bank Co. in Shanghai.
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